By Saeed Azhar, Saqib Iqbal Ahmed and Matt Tracy
NEW YORK, Feb 27 (Reuters) - The $2 trillion private credit industry, which has expanded over the past decade from financing leveraged buyouts to areas banks dominated, is facing fresh strain from turmoil at Blue Owl Capital, a major private lender.
Sentiment was already hit by questions about valuation and transparency, and specific situations such as the bankruptcy of auto-parts supplier First Brands, which some private credit players had exposure
to.
Concerns have been compounded by troubles at Blue Owl, which emerged late last year when it moved to limit withdrawals from a fund. In recent days, the firm has worried investors by selling shares of other alternative asset managers.
The collapse of UK mortgage provider Market Financial Solutions is adding to wider concerns about lending standards and the fast-growing market for private finance.
Some say the industry's size is working against it. State Street estimates the addressable market for private credit has grown to more than $40 trillion, including investment-grade credit.
"Private credit's golden era is not over yet, but the days of generating equity-like returns might be," said Kyle Walters, U.S. private equity analyst at PitchBook. "Moreover, private credit has reached a certain scale in recent years, leading to more players entering the asset class and increasing competition."
BLUE OWL PAIN
Blue Owl's turmoil matters well beyond the firm itself because of its scale, role in private credit markets, and close ties with institutional investors, corporate borrowers and wealthy individuals.
Blue Owl, which managed more than $300 billion in assets as of December 31, said last week it would sell $1.4 billion of assets across three funds, return part of the proceeds to some investors and pay down debt. It permanently removed an option for investors in the smallest vehicle, mainly wealthy individuals, to withdraw some funds every quarter.
Credit rating firm Moody's said Blue Owl's latest decision to pivot away from traditional quarterly redemptions has sharpened investor focus on how semi‑liquid private credit vehicles manage redemptions, especially with growing retail participation.
Blue Owl declined to comment.
"Retail investors tend to be less patient and predictable than institutional investors," said Johannes Moller, vice president for Moody's Ratings, in a report on Tuesday.
Moller said rising redemption pressure is showing up across the private credit market — including at perpetual non‑traded loan vehicles, or BDCs, which offer retail and high-net-worth investors access to private credit — amid concerns about valuations and liquidity terms.
As alternative managers push further into the retail channel, Moody's expects liquidity management, disclosure, and fund structure design to become more central to investor decision‑making — and potentially a drag on returns.
Blue Owl shares are down 29% year to date, while other major alternative asset managers are also lower. Shares of Blackstone are down nearly 27%, Apollo Global Management is down over 26% and Ares Management is down almost 31% this year.
Blackstone and Ares declined to comment, but pointed to recent comments by senior executives. Apollo did not respond to a request for comment.
"We enter 2026 in a position of strength," said Ares CEO Michael Arougheti on the company's earnings call, citing strong underlying performance across the portfolio, and improving capital markets and M&A backdrop.
Blackstone CFO Michael Chae said at a financial conference this month credit quality remains strong, but cautioned about an increase in defaults for the industry from an extremely low level.
"The structural advantages will continue to produce superior results. So, overall, outstanding momentum to our credit business as we move into 2026," he said.
SOFTWARE EXPOSURE STRESS
Shares of other private equity firms and alternative asset managers are also facing mounting unease over valuations of software companies that they own and lend to, as artificial intelligence threatens to upend business models.
"It’s not clear that things have fundamentally changed, but there’s an idea that there's a technology risk that may not have been fully priced in or contemplated as recently as three, six, or 12 months ago," said Christian Hoffmann, head of fixed income at Thornburg Investment Management.
INDUSTRY GROWTH
The private credit industry has evolved from providing direct loans to middle-market companies to asset-backed finance — loans backed by collateral such as hard assets.
Banks have also announced their private credit foray with JPMorgan Chase setting aside $50 billion for its direct lending push last year, while others have partnered with alternative asset managers on private credit strategies.
A recent Moody's report showed U.S. banks had lent nearly $300 billion to private credit providers as of June 2025. Banks loaned a further $285 billion to private equity funds and had $340 billion in unutilized bank lending commitments available to these borrowers.
Moody's has projected the industry's size to double to $4 trillion by 2030, but cautioned deepening ties between private credit funds and traditional financial institutions could heighten contagion risk in a downturn.
JPMorgan said this week it was watching the private credit market closely.
"I'm shocked that people are shocked. The reality is in this environment, as the world gets more volatile, as you get towards the end of the cycle, this outcome should be expected," Troy Rohrbaugh, co-CEO of JPMorgan Chase's commercial and investment bank, told investors on Monday, referring to private credit concerns.
(Reporting by Saqib Ahmed, Saeed Azhar in New York and Matt Tracy in Washington; additional reporting by Lananh Nguyen, Isla Binnie, Isla in New York and Manya Saini in Bengalaru; editing by Megan Davies, Rod Nickel)
